Portuguese death rate rise linked to pain of austerity program

Portugal’s health service is being forced into sweeping cuts as last May’s EU/IMF bailout terms begin to bite

Maria Isabel Martins got up at 5am to catch a bus from the eastern Portuguese country town of Portalegre to see a consultant in Lisbon about her diabetes. It is a 130-mile journey that takes three hours. It used to be free, but not any more.

“This is shameful. Now each visit costs me €44 (£36) and I have to come back in a few weeks,” the 53-year-old said, wheezing as she left the consultant’s surgery at the Santa Maria hospital.

There is a chart on the wall beside a machine that accepts credit cards. It shows the charges for seeing a doctor in one of western Europe’s poorest countries, where opposition politicians blame budget cuts for a thousand extra deaths in February, 20% more than usual.

“They hiked the fees in January,” said the receptionist, pointing to the new charges for everything from jabs and ear washes to having stitches removed. “Now a visit to the emergency room costs €20 instead of €9. A consultant costs €7.50. People are angry.”

The health service is just one victim of sweeping cuts and increased charges for public services across Portugal. After the €130bn second bailout for Greece was signed off last week, bond markets switched their attention to southern Europe’s other failing economy.

A general strike on Thursday will show just how angry the Portuguese are about the terms of a €78bn EU and IMF bailout last May that has so far brought only pain and recession. Official forecasts are for the economy to contract 3.3% this year and unemployment to rise to 14.5%.

“They are driving the country towards disaster,” said Arménio Carlos, the leader of the General Confederation of Portuguese Workers, who adds that as health, electricity and public transport charges shoot up, the €432 monthly minimum take-home wage now dooms hundreds of thousands to poverty.

But popular reaction to the bailout has been stoical so far and the general workers’ union is not backing this week’s strike.

Many analysts believe Portugal is fated to follow Greece into a second bailout. The European commission put Portuguese debt at 110% of GDP last year, and the yield on 10-year bonds on Monday stayed above 13% – double the level considered remotely sustainable for it to borrow on its own. Goldman Sachs sees Portugal needing up to €50bn more until 2014.

“There will be a big debate about how to split the burden between the EU, creditors, the International Monetary Fund (IMF) and the European Central Bank,” Mohamed El-Erian, the chief executive of Pimco – the world’s biggest bond investor, with $1.36tn under management – told Der Spiegel at the weekend. “And then financial markets will become nervous, because they are worried about private sector participation.”

Analysts are split on whether private sector lenders will be forced to take a “haircut” to write off some of the country’s debt, as with Greece. “A haircut? Naturally, if you add in the private debt, Portugal’s debt is not sustainable given its future growth outlook,” said Edward Hugh, an economist in Barcelona.

The IMF representative in Lisbon, Albert Jaeger, said: “We believe that Portugal’s public debt is sustainable and we do not see a need for [private sector involvement].”

But Portuguese experts feel it will not be able to find financing on the markets in 2013, as planned, though the recently elected centre-right government of Pedro Passos Coelho is doing almost all it has been asked.

“It’s wishful thinking,” said Nuno Garoupa of the University of Illinois. He believes Portugal’s future inside, or outside, the eurozone will depend largely on the German government that emerges from elections next year.

Meanwhile, the future remains uncertain. Portugal’s growth rate has stayed stubbornly low for the past decade, although a recent surge in exports provides some hope.

It has been forced into a fire sale of blue-chip state assets, with a quarter of electricity grid operator REN sold to China State Grid for €387m last month. That came on the back of a €2.7bn deal for China Three Gorges to take 21% of the utility company Energias de Portugal.

Chinese companies are among the few ready to bid for Portuguese assets. The REN bid, presented jointly with Oman Oil, was the only one left on the table.

Even the oil-rich former colony Angola is being courted as Portugal tries to meet a privatisation target of €5bn set when the bailout was agreed. The TAP airline and airport operator ANA are up for sale, along with parts of the postal service, water utilities, state banks, the rail service and the oil company Galp.

With key decisions on Portugal’s future now being taken in Brussels or by the IMF, the historian Irene Flunser Pimentel has noted a growing nostalgia for the days of dictator António de Oliveira Salazar. “I worry that democracy is at stake,” she said. “The middle class is beginning to suffer and, when you don’t have a middle class, you are in trouble. This is becoming easy ground for a populist.”

In the meantime, the government blames flu and cold weather for February’s surprise jump in the mortality rate, but newspapers have begun to publish scare stories about people who claim to have been priced out of the public health service.

Pimentel says the Portuguese cannot be expected to remain stoical for ever. “I think it will explode eventually,” she said. “It is impossible for people to remain this passive.”